Changes to Cafeteria plans and opting out by employees:
The Internal Revenue Service has issued Notice 2014-55 which proposed amendments to Regulations Sec. 1.125-4 to define two sets of circumstances under which employees can revoke their election of employer-sponsored coverage under a cafeteria plan and purchase a qualified health plan through an exchange.
The first situation involves a participating employee whose hours of service are reduced so that the employee is expected to average less than 30 hours of service per week but for whom the reduction does not affect the eligibility for coverage under the employer’s group health plan. The Notice provides that the employee may drop the employer coverage as long as he or she represents that he or she will be enrolled in new “minimum essential coverage” no later than the first day of the second month following the date the employer’s coverage is revoked.
The second situation involves an employee participating in an employer’s group health plan who would like to cease coverage under the group health plan and purchase coverage through a Marketplace without that resulting either in a period of duplicate coverage (the employer’s group health plan overlapping the Marketplace plan) or a period of no coverage. In this case, the employee must represent that he or she will be enrolled in coverage through an Exchange no later than the day immediately following the loss of the employer coverage.
In order to comply with current regulations and allow for an employee to go the marketplace, a cafeteria plan must be amended to provide for such election changes on or before the last day of the plan year in which the elections are allowed. In addition, employers who want to adopt the amendments for a plan year that begins in 2014 may adopt the amendment on or before the last day of the plan year that begins in 2015.
Lookback Period:
In general, if employees average 30 or more hours per week during a look-back measurement period, they should be considered full-time during the subsequent stability period. The employer must either offer coverage to full-time employees during the stability period or potentially face a penalty.
IRS Notice 2014-49 covers situations where the measurement period for a particular employee changes, and provides a proposed approach for applying the lookback measurement period. This change may occur because the employee transfers within the same applicable large employer (or within the same applicable large employer or ALE) from a position to which one measurement period applies to a position to which a different measurement period applies. This situation may also arise when an ALE changes the measurement method applicable to employees within a permissible category (for example, from a 6-month to a 12-month measurement period).
Under the proposed rule, for an employee who has been employed for a full measurement period at the time of the transfer (and will either be considered a full-time employee or non-full-time employee for the stability period in that measurement period), the employee retains his or her status through the end of the associated stability period. For an employee who is not in a stability period (or administrative period) at the time of transfer, the employee’s status is determined using the measurement period that applies to the second position, but hours of service in the first position are included.
Until the regulations are amended, both of these notices should be good guidance for the time being.
Patient-Centered Outcomes Research (PCOR) fee:
The PCOR fee is a temporary assessment against group health plans and is used to fund comparative research studies. IRS Notice 2014-56 confirms the fee amount for the next two years since the fee is indexed annually. The fee amount is determined by the date of the end of plan year:
- If the plan year ends on or after October 1, 2013, but before October 1, 2014, the fee amount per covered life is $2.00 for that plan year.
- If the plan year ends on or after October 1, 2014, but before October 1, 2015, the fee amount per covered life is $2.08.
The fee is expected to end in 2019 for most plans.
Source: IRS, Sutherland Asbill & Brennan LLP 9/25/14, The Tax Advisor 9/19/14, McGraw Wentworth 10/3/14